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United States v. Spectrum Brands, Inc.

United States District Court, W.D. Wisconsin

November 17, 2016



          WILLIAM M. CONLEY District Judge.

         Between 2008 and 2012, Applica Consumer Products, Inc. (“Applica”), received roughly 1, 600 reports from U.S. consumers that the carafes distributed as part of its Black & Decker SpaceMaker line of coffeemakers were suddenly cracking, separating and breaking at the handle. Some of these handle failures included reports of burns and lacerations. By virtue of its acquisition of Applica's parent company in 2010 and eventual merger with Applica in 2014, the defendant, Spectrum Brands, Inc., assumed legal responsibility for Applica's obligation, if any, to report these potential defects in the carafe handles under the Consumer Product Safety Act (“the Act” or “CPSA”).

         Congress designed the CPSA to “protect the public against unreasonable risks of injury associated with consumer products.” 15 U.S.C. § 2051. To achieve that goal, section 15(b) of the Act requires manufacturers, retailers and distributors of consumer products to report “immediately” to the Consumer Product Safety Commission (“CPSC”) “information which reasonably supports the conclusion that [a] product contains a defect which could create a substantial product hazard . . . [or] creates an unreasonable risk of serious injury or death[.]” 15 U.S.C. § 2064(b).

         While the CPSA obligates companies to self-report information about potentially defective products, the plain language of section 15(b) does not require companies to report every potential defect. Under the operative regulations, companies are directed to undertake a two-step evaluation process before reporting by first determining whether a “defect” may exist, and then whether that defect could create a substantial product hazard. 15 U.S.C. § 2064(b)(3); 16 C.F.R. § 1115.4. The parties agree that the answer to the first question is “yes, ” so the present dispute centers on whether the defective coffee pot handles could create a substantial product hazard.[1]

         In this lawsuit, the United States of America seeks civil penalties and permanent injunctive relief against Spectrum, alleging its delay in informing the CPSC about these apparently defective handles violated reporting requirements under section 15(b) of the CPSA. Spectrum argues that the defects in the carafes were never a substantial product hazard sufficient to give rise to a reporting obligation under section 15(b). Alternatively, Spectrum argues that the government's claims are now procedurally barred for a variety of reasons, including statute of limitations, vagueness and denial of due process generally.

         Pending before the court are dispositive motions from both sides, each asserting a right to judgment as a matter of law based on undisputed facts. For the reasons explained below, the court finds Spectrum's procedural defenses unpersuasive and that it violated the statute, having failed to submit a section 15(b) report until years after its reporting obligation originally arose.


         A. The parties

         The United States Department of Justice (“DOJ”) filed this suit on behalf of the government, specifically the CPSC, an independent federal agency charged with enforcing the CPSA, after its five-member commission unanimously voted to refer this enforcement action to DOJ.

         Spectrum is a corporation organized under Delaware law with its principal place of business located in Middleton, Wisconsin. In June of 2010, Spectrum acquired 100% of Russell Hobbs, Inc. By virtue of that acquisition, another company, Applica, also became Spectrum's wholly owned subsidiary. When Spectrum and Applica merged in 2014, Spectrum assumed all of Applica's assets and liabilities. Therefore, the parties treat Spectrum and Applica as the same entity for the purposes of this lawsuit, as will the court.

         Between July of 2008 and April of 2012, Applica imported from China, and then sold in the United States, a line of Black & Decker SpaceMaker Under-the-Cabinet Coffeemakers.[3] While Applica created the specifications for the coffeemakers, an approved Chinese vendor, Yamada, designed, tested and manufactured them.

         The carafes included with the coffeemakers were glass, with a molded plastic handle attached to the glass pot with a single screw near the top and a metallic bracket encircling the pot near the bottom. Applica's specifications for the handles required them to be capable of withstanding approximately 132 ounces, double the maximum capacity of the carafes, along with the wear and tear caused by 10, 000 “test” or “brew” cycles. In addition, the coffeemakers were designed to brew a full carafe of coffee at a temperature lasting between 165°F and 195°F for up to two minutes, and a half carafe between 160°F and 195°F up to thirty minutes.

         B. Initial reports from consumers

         Between 2008 and 2012, Applica received customer complaints about its products via phone or email through a call center operated by Fox International Ltd., Inc. (“Fox”). Fox provided Applica, and therefore effectively Spectrum, with daily reports about quality or safety concerns raised by customers. These were then regularly reviewed by the company's directors and legal counsel.

         There is no factual dispute as to Applica's (or Spectrum's imputed) contemporaneous knowledge of consumer complaints concerning the carafe handles.[4] Applica began receiving complaints in November of 2008, when a customer reported a broken handle. By February of 2009, reports of at least fifteen other failures followed, including a notice from a customer stating that her husband's hand was burned when the handle broke and offering to send the broken carafe to Applica so that it could be “studied.” (Pl.'s Reply PFOF (dkt. #114) ¶ 96.)

         In March of 2009, Applica performed a “returned product analysis” on a customer's broken carafe at the direction of Peter Taube, Applica's Product Assurance Director. In a report summarizing the results of that analysis, an Applica staff engineer stated:

Plastic catches (Photo 2, 3) on the upper carafe housing are broken on both sides[.] Additionally, the upper screw boss is fractured as is the plastic directly below the boss. This allows the carafe to slip forward while pouring coffee. The material thickness of this catch, the strength of the boss and the plastic material brittleness may be contributing factors in this failure.

(Id. at ¶ 107.)

         After Applica received another report about a broken handle, Taube sent an email to Stuart Slugh, Applica's Senior Director of Consumer Services, and Leslie Campbell, Applica's Vice President of Engineering. Dated April 4, 2009, Taube expressed his hope to “escalate” the issue of a potential defect. (Id. at ¶¶ 110-11.) Around April 16, 2009, Taube also requested that another product analysis be performed on a returned carafe. The summary of that analysis described findings similar to the first:

Unit received with the carafe handle separation from mounting ring on the carafe bottom and broken upper handle (Photo 1). Plastic catch on upper housing carafe is broken on one side (Photo 2). Additionally, the upper screw boss is fractured (Photo 3) and several plastic cracks are found in carafe spout, plastic catch and handle cover, and housing (Photo 4, 5, 6, & 7). The broken screw boss was also fractured on both sides (Photo 8.)

(Pl.'s PFOF Ex. 6 (dkt. #79-6).) By May of 2009, Applica had received more reports of broken handles, totaling at least 60, including four reports of resulting burns.[5]

         C. Remedial measures and additional reports

         On April 1, 2009, Applica asked Yamada to find the causes of and suggest corrections for the three issues identified in the March returned product analysis -- the thickness of the catch, the strength of the boss and the brittleness of the plastic. Yamada proposed four “permanent corrective actions, ” which Applica developed into and issued as an “Engineering Change Request” (“ECR”), intending to implement changes to strengthen the handles. That ECR included a “STOCK-SCRAP” order, which required Yamada's remaining inventory be discarded. Taube also followed-up by email, emphasizing that: (1) the handle changes were “mandatory”; and (2) Applica would not accept carafes that did not implement the new design. By May of 2009, Applica had tested the newly designed carafes and began stocking them as part of a “rolling change, ” meaning that they would be shipped to consumers as the inventory of the old design was exhausted.

         According to Taube, Applica monitors consumer complaints regarding a product more closely after implementing an engineering change. With the complaints continuing, Applica began receiving letters concerning the carafes from the CPSC itself. In particular, the CPSC notified Applica's counsel by letter dated June 30, 2009, about a complaint it received from the same consumer whose report to Applica was the basis of Taube's email from April 4, 2009. The letter specifically identified an apparent failure of the screw securing the handle to the carafe, and further admonished as follows:

The reports we have provided you may -- either alone or with other information you now have or may later receive -- reasonably support a conclusion that the product contains a defect which could create a substantial product hazard, or creates an unreasonable risk of death or serious injury. If so, you are required under section 15(b) of the CPSA, 15 U.S.C. 2064(b), to notify the Office of Compliance and Field Operations at the CPSC.

(Decl. of Thomas John Schroeder Ex. B1 (dkt. #80-2) (emphasis added).) By the end of 2009, Applica had received at least 300 complaints about broken handles, including fourteen reports of resulting burns or lacerations.

         On or around February 26, 2010, the CPSC sent Applica two more notifications about broken handles, which were then followed by two more on or around March 31, another on September 30, and two more on December 31, 2010. Each of these notifications included the same warning to Applica regarding the section 15(b) reporting requirement. Applica received more reports of broken handles directly from customers throughout 2010, culminating in over 1, 000 reports, including forty-nine involving burns or lacerations. The following year, those numbers climbed to over 1, 500 reports, sixty-four of which involved burns or lacerations.[6]

         D. Spectrum reports to the CPSC

         In March of 2012, Spectrum was served with a class action complaint that alleged the carafes were defectively designed. In response, Spectrum ordered a “review of the product history” of the coffeemakers. This resulted in Spectrum ordering Applica to voluntarily recall them.

         By the time Spectrum submitted a section 15(b) report to the CPSC on April 3, 2012, it had received approximately 1, 600 reports of broken handles, 66 reports of burns and three reports of lacerations since November of 2008. Along with the report, Spectrum requested a “fast track recall, ” explaining in a letter to the CPSC that it did so as a “strategic response to a lawsuit without merit, ” since under a fast track procedure, “there is no determination by the staff that the product presents a substantial product hazard or unreasonable risk of serious injury or death.” (Pl.'s PFOF Ex. 4 (dkt. #79-4) at 10.) Spectrum submitted an amended, supplemental report on April 27, 2012.

         The CPSC issued a press release announcing a recall of the coffeemakers on or around June 1, 2012. In January of 2013, the CPSC went further, issuing an updated release to reflect that consumers would receive a full refund rather than a replacement carafe. Since both recalls were a type of “voluntary corrective action” under the CPSA, Spectrum worked together with the CPSC to issue the recall.


         Section 15(b) of the CPSA requires companies to report certain information about a potentially defective or dangerous product:

Every manufacturer of a consumer product . . . distributed in commerce, and every distributor and retailer of such product, who obtains information which reasonably supports the conclusion that such product --
. . . .
(3) contains a defect which could create a substantial product hazard described in subsection (a)(2) of this section; or
(4) creates an unreasonable risk of serious injury or death, shall immediately inform the Commission of such . . . defect, or of such risk, unless such manufacturer, distributor, or retailer has actual knowledge that the Commission has been adequately informed of such defect . . . or such risk.

15 U.S.C. § 2064(b).

         Any manufacturer that “knowingly” violates the CPSA's reporting requirement “shall be subject to a civil penalty not to exceed $100, 000 for each such violation, ” up to a maximum penalty of $15, 000, 000 “for any related series of violations.” 15 U.S.C. § 2069. The CPSA also gives district courts jurisdiction to “[r]estrain any violation” of section 15(b) through equitable means. 15 U.S.C. § 2071(a)(1).

         The government seeks summary judgment on its claims that Spectrum violated the CPSA by failing to report the defective carafe handles sooner. Spectrum moves for dismissal of plaintiff's claims as barred by the statute of limitations. It also moves for summary judgment on the grounds that: (1) the CPSA's reporting requirements are unconstitutionally vague; (2) the CPSC failed to provide fair notice that a report was required in light of its investigations involving other coffeemakers distributed by Spectrum; (3) the CPSC's determination that Spectrum violated the reporting requirements was arbitrary and capricious; and (4) Spectrum had no obligation to report the handle failures because the CPSC was already “adequately informed” within the meaning of section 15(b). Spectrum also seeks leave to file: (1) additional evidence in support of its motion for summary judgment; and (2) an additional motion for summary judgment, based on its purported discovery of new evidence that the CPSC “failed to satisfy a mandatory statutory precondition for bringing suit.” (Def.'s Mot. for Summ. Judg. (dkt. # 140) at 2.) Given their variety, the court will first address defendant's threshold procedural arguments before turning to the substantive merits.

         I. Procedural Arguments

         A. Motions for leave

         In the preliminary pretrial conference order entered September 28, 2015, the court established May 6, 2016, as the dispositive motions deadline and July 15, 2016, as the discovery deadline. (Dkt. #15.) Spectrum submitted its first set of interrogatories to the government on October 12, 2015, including interrogatory number five, which is set forth below.

State the amount of the civil penalty you seek in each count of your Complaint, and describe in complete detail the CPSC's consideration of the factors set forth in section 20(b) of the [CPSA], 15 U.S.C. 2096(b), and 16 F.F.R. Part 1119, including, without limitation, how each factor was weighed in making the determination of the amount of the penalty to be sought.

(Pl.'s Mot. for Leave (dkt. #140) at 2.)

         On November 16, 2015, the government responded as follows:

If Spectrum is found liable under Sections 2068(a)(2)(B) and (a)(4) of the CPSA, the United States will make a specific request for a civil monetary penalty based on the facts illuminated through discovery. The United States' request will explain the basis of the requested civil monetary penalty. Accordingly, Interrogatory 5 is also premature.

(Id. (citing Decl. of James Hemmings Ex. 1 (dkt. #126-1).) After Spectrum objected to the adequacy of this original response, [7] the government provided a supplemental response at Spectrum's request on July 1, 2016, further explaining that:

The Commissioners deliberated based on a legal memorandum provided by the CPSC's Office of General Counsel and discussions with attorneys of that office . . ., and upon considering the section 20(b) factors decided to seek up to the maximum civil penalty authorized by law.

(Decl. of Timothy L. Mullin Ex. B (dkt. #130-2) at 5.) In this supplement, the government also presented its own analysis of the section 20(b) factors, though again maintaining that the actual amount of the civil penalty it seeks depends on the findings as to liability. (Id. at 4-10.)

         Finding this response to still be inadequate, Spectrum filed a motion to compel “a full response” on July 8, 2016. (Def.'s Mot. to Compel (dkt. #129) at 1.) Along with a response to Spectrum's motion provided on the discovery deadline, the government filed a declaration from Elliot Kaye, the Chairman of the CPSC, in which he confirmed that “there is no written analysis of the Commissioners' consideration of the factors, and that the Commissioners deliberated individually.” (Decl. of Elliot F. Kaye (dkt. #136) ¶ 3.) During the hearing on that motion, Spectrum's counsel conceded that the legal memorandum was privileged and, therefore, not subject to production. (Tr. of Mot. Hr'g (dkt. #138) at 8.) Given this concession, this court denied Spectrum's motion to compel. (Dkt. #137.) Nevertheless, based on supposedly “new evidence” in Kaye's declaration, Spectrum: (1) seeks leave to bolster its argument that the CPSC acted arbitrarily and capriciously in authorizing this action for civil penalties, as demonstrated by the “Justice Department's takeover of the Commission's statutorily-prescribed function to assess penalties” (Def.'s Mot. for Leave (dkt. #131) at 2); and (2) moves for summary judgment on the additional basis that the CPSC “failed to make a formal determination of the appropriate amount of penalties to seek in this matter, in violation of both the [CPSA] and the Commission's own regulations.” (Def.'s Mot. for Leave (dkt. #140) at 2.) The court will deny both motions.

         The initial question governing both of defendant's motions is whether the evidence is “new.” See Whitford v. Boglino, 63 F.3d 527, 530 (7th Cir. 1995) (“A renewed or successive summary judgment motion is appropriate, especially if one of the following grounds exists: (1) an intervening change in controlling law; (2) the availability of new evidence or an expanded factual record; and (3) the need to correct a clear error or prevent manifest injustice.”) (internal quotation marks and citation omitted). Ordinarily, to constitute “new evidence, ” the moving party must show not only that the evidence was newly discovered, but also that it could not have been timely discovered “with reasonable diligence.” See, e.g., Caisse Nationale de Credit Agricole v. CBI Indus., Inc., 90 F.3d 1264, 1269 (7th Cir. 1996); Exec. Ctr. III, LLC v. Meieran, 823 F.Supp.2d 883, 897 (E.D. Wis. 2011) (“In other words, it is not enough to show only that one has obtained new evidence; rather, the party moving the Court for reconsideration must also show that the evidence was not reasonably available at the time the original summary judgment motion was pending.”).

         Spectrum claims that the reason for its late assertion of new evidence is that the government's initial response to interrogatory number five “led Spectrum to believe that some documentation of the Commission's consideration of the civil penalty factors actually existed, but that the Government was not producing it at that time.” (Def.'s Br. in Supp. of Additional Mot. for Summ. Judg. (dkt. #140-2) at 1 n.1.) Therefore, Spectrum claims, only after the government filed its brief in opposition to its motion to compel and Kaye's declaration did “Spectrum finally learn[] that there is no record of the Commission's collective consideration of ...

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